Question

Q.1 In 300 words or less, explain why managers are important users of their business’ accounting information. (Identify and explain at least four (4) reasons.)

Q2. Give at least five (5) examples of decisions that managers may make which would rely on that accounting information.

Answer 1

PART-1)

Accounting information provides managers with data required to determine whether a business is at a loss or a profit, how much a business owes others, how much debtors owe, and other required financial information. The managers are important users of their business’ accounting information because of the following reasons:

1) Provide cash numbers: Cash is the vital business asset. Managers can use accounting information to know where the business is cash-wise and thus plan for financing activities and other strategies for both short-term and long-term planning

2) Budget: The historical information which is required in the budget making is supplied by Accounting. Managers need to be aware of budget numbers to compare to actual numbers. It provides a guide to determine that a business is on track, as planned.

3) Follow up on accounts receivable: Accounting information can be helpful to managers to figure out who owes the company money and for how long. The "aging receivable report," provides a detailed important accounting report that can be used by managers to identify slow paying clients and thus can follow up on them to preventing possible income loss. In a small businesses, cash is king, especially with and the faster customer payments, the firm will be better off the to meet the financial obligations.

4) Motivation: As labor-employees are to be motivated on achievement expected performance. However the managers should be aware of financial position of the company for providing financial benefits. Accounting information provides necessary information for taking sound decisions.

5) Control: Controlling is essential for managers to ensure that the activities are completed according to plan. Accounting information can be helpful to managers in controlling.

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PART-2)

1) For example, if the cash balance of company is $60,000 and there is a huge requirement for a large purchase of $130,000 for equipment, a manager can decide to finance the entire purchase instead of using the $60,000 cash balance.

2) For example current ratio is a popular approach to verify how a firm is able to meet its short-term debt, is computed by dividing current assets by current liabilities. The higher the ratio, the better off a business is. Many business owners and managers use ratios to analyze financial data.

3) For example: If a postage expense number of business is almost over budget, the management should can research the cause for the higher expense in that line item and make proper decisions about it.

4) For example: If actual versus budget reports indicates a trend towards high inventory costs, then managers need to consider renegotiating terms or even changing suppliers or prices

5) For example, a small business owner may be not be able to make a decision whether to focus the marketing efforts. To evaluate the decision, accounting information provides data to differ between advertising alternatives for each product, ignoring common costs. Thus helps managers in reaching to conclusion.